Here is a very interesting post in Forbes about the importance of building your audience before you launch a crowdfunding campaign and how to do it. Author Evan Marsamis has it right, the marketing work done before your launch is as important as what you do after launch. Rule 1 of Crowdfunding: Create Your Crowd!
The three venture funding reports listed in the article are very interesting posts, and it is great to see this strong trend for our North Carolina businesses. I am sure there are many reasons for the increase in venture funding, including more money than ever is available from existing and new venture funds, and we have a very vibrant and active startup community in the Triangle and around the state.
In my opinion we now truly have one of the top startup ecosystems in the nation, allowing us to rank right up there with places like Austin, Boston, Seattle and Atlanta as places where startups want to be and investors want to invest. The strong consideration of our area by Apple and Amazon reinforces that belief.
Of course I view things from the investment crowdfunding perspective, and I think that has made a contribution to the growth of the venture capital market nationwide in a couple of ways:
A larger pool of potential companies for the VCs to back. Many companies that are too early stage for most of the VC community have been able to prove their value proposition and achieve important metrics with seed stage investment crowdfunding rounds. So this is providing a larger pool of pre-vetted companies as they move to the Series A and later stages where the VCs like to participate. About the same amount of money is now being raised by companies with crowdfunding as is being raised from early stage angel investors, so the available pool of seed stage funded startups is now much larger.
Earlier exit opportunities. The investment crowdfunding platforms have begun to create secondary markets for the stock of these startups. Before, it usually took 5 to 10 years for even a very successful startup to be acquired or have an IPO. But now the early investors and startup employees have a new alternative to getting some of their return earlier. They can sell some of their stock as a secondary offering on one of the investment crowdfunding platforms (Microventures.com in Austin has been a leader in this area), or they can use the Federal JOBS Act Regulation A+ to sell up to $50M worth of their stock as an investment crowdfunding round in what is known as a “Mini IPO”. A percentage of the stock can be from early investors and employees.
Both of these developments are helping the VCs to raise money for their own funds and then invest it in startups, because there is a larger pool of pre-vetted startups to put the money to work, and the potential for some quicker returns on investment. The effect of these developments is not that large yet in North Carolina, but I think it will grow into a significant factor here soon as it has in places like Silicon Valley, Austin, Boston, Seattle and Atlanta. So our startup community has a strong future ahead of it.
A video of the investment crowdfunding seminar we did recently at the American Underground startup accelerator in Durham is now available. We had a large crowd of interested startuppers and small business owners for our lunch and learn session at AU.
These seminars are held at various locations around the state in conjunction with our crowdfunding partners. Mark Easley, the publisher and editor of CrowdfundNC.com is the featured speaker, and he discusses how to use the new North Carolina Localstake NC investment crowdfunding platform to get funding for your startup or existing business. Localstake NC enables startups and existing businesses to conduct a cost effective and professional debt or equity securities offering and get funding from new sources: their community, customers, partners, and supporters. This seminar will help both entrepreneurs and investors understand these new funding options and how to make use of them.
You can learn more and sign up for one of our upcoming live seminars on the Events tab.
LocalstakeNC enables startups and existing businesses
to conduct a cost effective and professional debt or equity securities offering and get
funding from new sources: their community, customers, partners, and supporters.
Investment crowdfunding has
been growing significantly around the nation, with billions of dollars raised
across many different platforms. Now it's our turn North Carolina! It's time to start
investment crowdfunding our most promising North Carolina startups and existing businesses
to help grow the economy, create jobs, and enable new products and services in communities all over our state.
Localstake NC is the first investment
crowdfunding platform exclusively serving North
Carolina. Startups and existing businesses ranging from technology startups to retail shops and restaurants can use the platform to
raise money to get a company started or to help it grow. Localstake NC will be hosting private Reg D 506(b) accredited investor offerings, 506(c) accredited investor offerings that can advertise and do general solicitation, and also public investment crowdfunding offerings using the North Carolina PACES Act exemption or Federal JOBS Act Regulation Crowdfunding or Reg A+ exemptions for retail investors and accredited investors. Startups and existing businesses can have offerings of several types including equity, SAFEs, convertible notes, revenue share loans, and conventional loans.
The new NC PACES Act investment crowdfunding law provides a great new innovative option for raising money from all North
What are the new securities law exemptions like the NC PACES Act and Regulation Crowdfunding? Start-up companies and existing businesses play a critical role in creating new jobs and growing the economy. The North Carolina Providing Access to Capital for Entrepreneurs and Small business (NC PACES) Act crowdfunding legislation enables a safe, fair, and easy way to finance startups and existing businesses in North Carolina called investment crowdfunding. Regulation Crowdfunding is a part of the federal JOBS Act securities law exemption. It is more complicated and expensive to implement, but enables investment crowdfunding at the national level. Offerings using both types of exemptions can be hosted on Localstake NC. And for the first time, all North Carolina residents can invest in startups and small businesses that use the NC PACES Act or Regulation Crowdfunding to raise money. North Carolina residents can now allocate a portion of their investment funds in an organized and transparent way by opening an investment account on Localstake NC, which is a registered Broker/Dealer in North Carolina. This enables investors to connect with local businesses that are raising money, access organized company profiles and financial information, and build and manage a diversified portfolio of local investments. North Carolina residents can help fund businesses in their own community while potentially receiving a good return on their investment from interest on revenue share loans and other types of loans. They can also invest in equity offerings from high growth startups that were previously only available to wealthy angel investors, venture capitalists, and private equity firms. These types of investments can now be open to everyone.
How do businesses get funded on Localstake NC?
The investment crowdfunding mission of a startup or small business is to create a great company profile and offering on Localstake NC that explains:
The company vision
The problem to
The product or service solution they have for that problem
Identification of the target market and how to reach it
A business plan and model that works
An analysis of the
competition and how to win
A reasonable financial projection of
The team that that can make
the business a success
The terms and disclosures about the investment offering
On the company profile webpage on LocalstakeNC,
the business will make the case for the funding they need to get that done, and
explain the investment offering they are making. The next step is to run an investment crowdfunding campaign to raise the needed funding. The goal is to find investors
in the community and around North
Carolina that share your enthusiasm for your
business and will help fund it. Localstake NC also provides the broker/dealer investment accounts and the tools to enable investors to invest, and to manage the required disclosures and reporting to investors by the company.
Businesses can use LocalstakeNC to raise money using a variety
of securities law exemptions including Reg D Rule 506(b) and 506(c), Rule 504,
Regulation Crowdfunding (Reg CF), Reg A+ (Mini IPO), and NC PACES Offerings (NCPO). And the
securities offered can be a variety of types including convertible notes,
preferred or common equity, SAFEs, revenue share loans, or other types of promissory
note debt securities.
Localstake NC is an extension of
Localstake Marketplace LLC, a registered Broker/Dealer, which provides capital
raising advisory services and an online investment platform. Localstake, based
has helped small businesses raise millions of dollars using investment
crowdfunding since 2013. Localstake supports federal and intrastate investment
crowdfunding offerings in Indiana, Michigan, and Colorado,
and is now bringing that expertise to North
Carolina. Localstake Marketplace is a registered
Broker/Dealer in North Carolina
and other states, which means offerings conducted on the platform are regulated
under the purview of FINRA and the SEC. Please visit LocalstakeNC
to learn how it works, how to raise funding, how to invest, how to sign up for a free trial business account or how to sign up for a free investor account.
Localstake NC is partnering with CrowdfundNC.com, an educational
and services website that is building the ecosystem needed to support
investment crowdfunding in North Carolina.
At CrowdfundNC.com you can find the tools and services from the top investment
crowdfunding experts in North
Carolina to help you put together the right
offering, create and market your crowdfunding campaign, and get the funding you
services partners are North Carolina
crowdfunding specialists including crowdfunding advisors, law firms, marketing agencies, sales channel advisors, video creation services, business
planning advisors, technology development companies, CPAs, HR service companies and more for the startup and
small business community.
Part I: Creating an Investment Crowdfunding Offering (Using the NC PACES Act exemption as an example)
By Mark Easley
NC PACES Act crowdfunding rules have been finalized, and the act is in effect
as of April 1st 2017. The NC Secretary of State web site has the
rules, forms, instructions and FAQs that startups and small businesses need to
start using this new type of intrastate investment crowdfunding financing.
There is more good news
today. An excellent established investment crowdfunding website with experience
doing intrastate offerings is supporting the NC PACES Act and other types of investment crowdfunding offerings on their new North Carolina platform. Localstake NC, with headquarters
in Indianapolis, has been helping companies make
successful intrastate offerings in Indiana, Michigan, and Colorado
and they have now brought that expertise to businesses and investors here in North Carolina. Small
businesses and startups have used Localstake to raise millions of dollars using
the intrastate exemptions and other offering types since 2013. Localstake NC has been certified as a Broker/Dealer in North Carolina and is now open for business to do investment crowdfunding campaigns here.
An investment platform like
Localstake NC provides many useful services to help make your fundraising job easier. They will help with
planning your offering, track dollar limits and residency for investors, help
develop a target investor outreach program, and handle the investment process
procedures like document reviews and signatures, escrow managment, funds transfer, and closing. And after a successful campaign, they will assist with any reporting required to investors and with payment processing of debt offerings.
How do I put an offering together?
The first step in putting
together an offering is to do some research on how others have done it. The Indiana version of Localstake.com
has many good examples of how this works,
including companies with products and services in categories like
Retail/Wholesale, Food/Beverage, Business Services, Healthcare/Biotech,
Manufacturing, Software/Technology, and more.
We can see from the
offerings on www.localstake.com what
is needed to create a good offering. Issuer companies create an offering page
which includes a summary description, often a short introductory video about
the company, a business plan section describing the product or service, target
customers, development process, marketing strategy, management team,
competition, and other relevant information for investors. They can also
include financial information if they have been in business long enough to have
them, or their financial projections if they haven’t. The issuer should also include info about the use of funds, and the
actual investment documentation for investors to review. All of this
information is referred to as the company profile, and this is what you will
use to attract investors to your offering.
Which exemption should I use? What are the rules?
You can choose an NC PACES exemption, a Reg D 506(b), 506(c), or 504, or Regulation Crowdfunding, or Reg A+ exemption, but keep in mind the rules are different for each of the exemptions. Your attorney and advisors can help you understand the requirements of each. Let’s look at NC PACES as an example. If you are using an NC PACES offering, you can build a company
profile on Localstake NC for what is called a North Carolina Paces offering (NCPO), or make a website yourself if you
prefer to use a smaller offering type called a Local Public Offering (LPO). But the platform or your website has to be compliant with the PACES law
and the rules on the NC Secretary of State website, so you should get familiar
with those too. Read the FAQs first, then the PACES Act rules
to get a good idea how this all works.
ranging from brand new to mature can make use of the new law for financing.
North Carolina based startups and small businesses that want to raise money
using the NC PACES Act crowdfunding law (referred to as issuers of an
investment offering) will follow the registration, reporting, escrow management,
record keeping, promotion, and procedure rules of the PACES Act on the
Secretary of State website. Once an offering filing is approved by state
regulators, businesses can start raising money using equity or debt offerings
to raise up to $2M if they have reviewed or audited financials, and up to $1M
if they do not. North Carolina accredited angel investors can invest an unlimited amount, and North Carolina unaccredited retail investors can invest up to $5000 per offering.
PACES allows three
different sizes of offerings depending on the amount of money you want to
raise, and the rules are slightly different for each.
Local Public Offering (LPO) – you can raise up to $250k, and promote the offering in a variety
of ways including social media, advertising, and events. You do not have
to use the internet to promote or list your offering, but if you do you
must have a PACES compliant website. You will still need to follow all
the PACES rules, except where the LPO rules provide you with a better
alternative that override the normal PACES rules. This is a "do-it-yourself" offering that under the current rules cannot use a registered funding platform or broker/dealer to host the offering. You will create and register the offering and submit the offering docs and marketing plan to the NC Securities Division, and meet with them to get the offering approved before you can launch.
NC PACES Offering (NCPO, up to $1M, also called the Invest NC Exemption) – you can raise up to $1M without audited
or reviewed financial statements as long as you give investors financial
information required by anti-fraud rules. In this case, you must use a
PACES compliant crowdfunding platform like Localstake NC, and you cannot publicly promote the offering
other than with a limited tombstone type description that links to the
offering website. With this type of offering, the platform will provide the tools and assistance to put the offering together, get it registered with the state regulators, manage the offering campaign, and make sure everything is compliant. In many cases this will be easier and more effective for issuers even if they are raising $250K or less.
NC PACES Offering (NCPO, up to $2M, also called the Invest NC Exemption) – you can raise up to
$2M if you have GAAP compliant financial statements that have been reviewed
or audited by a CPA. Your financial statements must cover the longer of 12
months or the period required by GAAP. In this case, you must have a PACES
compliant platform, and you cannot publicly promote the offering outside
the platform other than with a limited tombstone type description that
links to the offering website.
What type of offering should I do?
NC PACES allows equity or
debt offerings of various types, and three popular ones for startups and small
businesses are revenue
share loans, preferred
equity, or convertible
note offerings. Whichever type you choose, you will need to work with a securities
attorney to help you put together things like disclosure documents,
subscription agreements, term sheets, and the state filing forms you will need
to do to set up your offering, get it approved, and make sure you are in
compliance with the NC PACES securities law rules. If you decide to use
Localstake NC, they will help you analyze and build the right type of offering for
A key decision here is your
goal for how much will you raise, and what is the minimum amount you need that
will help your business achieve your objectives. PACES requires that any funds
collected from investors to be kept in an escrow account until the minimum
amount is reached. PACES requires that the minimum for an NCPO must be at least
20% of your goal and for an LPO at least 25% of your goal. You can read the issuer and escrow accountFAQs for more information. You should also make sure your company meets at least one
of the requirements
in Rule 147A for using an intrastate exemption. The
company must establish that it has a meaningful presence within the state by
satisfying at least ONE of the following FOUR “doing business” requirements:
its revenues come from within the state, or
its assets are located in the state, or
the funds raised are to be used to fund operations in the state, or
·a majority of the company’s employees are based in
Part II will cover finding
investors for your offering. Part III will discuss investing in private offerings.
Note: Both historical financial statements and financial projections must satisfy the anti-fraud rules of securities laws. Avoid telling partial truths. What you omit can create liability if it misleads investors. Be careful to be reasonable in what you assume when you create projections and tell investors your assumptions so they can determine reasonableness for themselves. Note: MostNorth Carolinabusinesses can use the new law, but your business must satisfy certain requirements for having connections to the state ofNorth Carolinaand not be on a short list of excluded types of businesses. See theIssuer FAQSfor more info. You must also have a Federal exemption for your offering - SEC Rules 147 or 147A. Check both Federal and state eligibility requirements before you start planning your offering. Note: Check with your securities attorney whether non-GAAP financial information you give investors will satisfy anti-fraud rules. All the dollar limits mentioned above are for rolling 12- month periods.
Note: This is just a brief overview of the NC PACES Act process, and is not intended to be legal, financial or investment advice. You should review all the information on the Secretary of State crowdfunding website, and work with a good business attorney to put your securities offering together. If you need help building a profile and putting an online offering together on the crowdfunding platform you may contact Ryan Flynn at Localstake NC. If you need help putting together a crowdfunding campaign such as legal, marketing, accounting, video production, technical product support, and more, please see our Services and Resources tabs on CrowdfundNC.com. If you have general questions about the NC PACES Act law and rules for thestate regulators, you may contact John Maron by email firstname.lastname@example.org . To stay informed about NC PACES and crowdfunding please subscribe on the upper right to CrowdfundNC.com and contact us by email email@example.com.